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Kevin Murphy, CEO of Acreage Holdings is on top of the cannabis world.
For several years, Acreage accumulated dozens of cannabis business licenses across 20 legal U.S. states, one of the industry’s most expansive footprints. Then in April Canadian giant Canopy Growth agreed to acquire Acreage for $3.4 billion once U.S. legal conditions permit. The world’s largest weed company had endorsed Murphy’s blueprint for conquering the U.S. market.
Even before it closes, the deal anointed Acreage the unofficial leader among the increasingly powerful group of multi-state operators (MSO). And if the acquisition closes as anticipated, Murphy’s personal holdings in Canopy will be worth roughly $500M, according to my analysis of regulatory filings.
Before the Canopy deal became public, Acreage was best known for putting former Republican Speaker of the House John Boehner to its board of directors. Today the company appears poised to have enormous influence over the industry.
Murphy sat down with WeedWeek on June 27 in San Francisco to discuss the Canopy deal, how the market will shake out, and whether former prohibitionist Boehner owes anyone an apology.
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Murphy, 57, is soft-spoken and very fit. After playing linebacker at Holy Cross and one season in the United States Football League, he began a career in finance, working at several large firms before moving into hedge funds.
In 2011, Murphy made his first cannabis investment in a Maine medical dispensary. Three years later he started the investment vehicle High Street Capital Partners, which invested in and leant money to license holders, largely in the northeast, an industry backwater.
The company changed its name to Acreage Holdings in 2018 and began to “roll-up” its existing investments. It raised $119M in venture capital, then believed to be the largest private cannabis investment to date. The cash infusion fueled Acreage’s acquisition strategy and prepared it to go public in Canada, which it did in November 2018.
A striking aspect of Acreage’s strategy -- and that of several rival MSOs -- is its relative lack of sales to date. The larger legal states have forced companies to adapt to complex and costly regulations, taxes and a stubbornly persistent illegal market which can often match legal operators on quality and undersell them on price.
Rather than swimming upstream with hundreds of other brands, Acreage prioritized building a broad portfolio of licenses. Canopy evidently found the geographic diversity more valuable than sales volume or a prominent brand. In 2018, Acreage generated C$21.1M in revenue, less than 1% of Canopy’s $3.4 Billion offer.
Now that Acreage has a foothold in most major U.S. markets, Murphy anticipates the differentiator between the larger players will be in the choices they offer consumers.
Late last year, Acreage acquired Form Factory, a California manufacturer and distributor that it believes will enable it to bring produce popular products to a much larger public. "If we discover for instance a brand in California," Murphy said, "We might approach that brand and say, 'Would you like to sell your goods in 19 other states?" And it will sell those products alongside in-house brands.
It doesn’t sit well with everyone that success in cannabis today can come at such a far remove from the plant and the movement to legalize it.
“I have no objection to mainstream investors and businesspeople making profit in the legal cannabis industry,” Steve DeAngelo founder of Oakland-based mega-dispensary Harborside wrote in an email. “What I have a problem with is these companies using their financial and political power to game the system to their advantage.”
Today, Harborside trades alongside Acreage on Canadian Securities Exchange, but they took very different routes to the public markets. DeAngelo was a legalization activist for decades when it was a risky, unprofitable life, before he opened Harborside in 2006. Then between 2012 and 2016 Harborside fought and won a four year lawsuit against the federal government.
Few if any cannabis activists have become capitalists as successfully as DeAngelo. And there’s some resentment at relative newcomers like Acreage which have prospered.
“I'm sorry they feel that way,” Murphy said. But “I'm not going to apologize for some of the success that we've had."
(DeAngelo is especially opposed to large companies who oppose legal home growing, presumably because they fear it cuts into earnings. Despite reports to the contrary, Murphy says he’s comfortable with home growing for personal use.)
The rise of Acreage and other MSOs shows the industry shedding some of the pieties that have propelled legalization so far. Nothing showed the trend as succinctly as Acreage’s appointment last year of former Republican Speaker of the House John Boehner to its board of directors.
As the industry’s figurehead in Washington D.C., Boehner presents some difficulties. He has never tried marijuana, and while in office he declared himself “unalterably opposed” to legalization. Since leaving office, Boehner says his position has “evolved.”
Acreage gave Boehner a stock package currently worth about $12M, which will jump to $20M when the Canopy acquisition closes according to media reports.
Boehner is also one of the very few industry advocates who doesn’t pay lip service to equity, the idea that the minority communities who were disproportionately punished during the war on drugs should benefit from the proceeds of legalization.
And Boehner was in a position to do something about it. "I don't have any regrets at all," Boehner told NPR this March. "I was opposed to the use of it. The whole criminal justice part of this, frankly, it never crossed my mind."
"Does John [Boehner]owe anyone anything? I can't speak for John," Murphy said when I asked if the Speaker owed an apology to people who have suffered because of the war on drugs.
Murphy called Boehner’s arrival on the scene a “turning point” that “helped legitimize our industry more than perhaps anything had before it.”
By contrast, Murphy said “It sickens me,” that people have been imprisoned for what Acreage does. The company is hiring a director of corporate social responsibility, an area where Murphy acknowledged it has fallen short thus far.
Boehner’s presence on the board did apparently help Acreage land the Canopy deal. Having someone of his stature “Means they’re going to be strict on governance, because they have reputations they can’t risk — and we need that,” Canopy CEO Bruce Linton told MarketWatch in May.
Several weeks earlier the Boston Globe had reported Acreage is "using complex corporate structures to acquire or manage store licenses" in excess of the three recreational retail licenses which the state permits a company to own or control.
Acreage’s plans, and that of another company “are not just pushing the limits built into the state law, but may be busting them entirely,” according to the Globe story. “Their early moves also threaten the state’s promise to not just legalize recreational marijuana but to make the marketplace for the drug a fair one in which diversity of ownership is prized and small players have a chance.”
Massachusetts regulators have reportedly opened an investigation into the matter.
Murphy declined to comment on the Globe story or state investigation. But he said Acreage is compliant in every state where it operates, and that it has been transparent with Massachusetts regulators. Similar practices by other MSOs have been reported on in other states. (Canopy did not respond to requests for comment.)
While people have used cannabis as medicine since antiquity, the drug’s recent history has delayed cannabis research and drug development behind where it might be. The absence of credible science enables both legalization supporters and opponents to interpret the ambiguities to maximum advantage.
During our 50 minutes, Murphy repeatedly steered the conversation to his passion for medical marijuana’s potential benefits for veterans with PTSD, opioid users, children with severe epilepsy and insomniacs among others.
Assertions like these, as Murphy acknowledges, are based largely on anecdotal evidence. But the future of Acreage’s business and that of its chief competitors primarily involves selling marijuana to adults who don’t have a pressing medical need for it.
On the other side of the health spectrum, Murphy expressed skepticism about a recent N.Y. Times op-ed headlined “Marijuana Damages Young Brains.” The piece, by two prominent doctors, states, “Numerous studies show that marijuana can have a deleterious impact on cognitive development in adolescents, impairing executive function, processing speed, memory, attention span and concentration.“ It calls on legal states to implement a legal buying age to 25.
"There would need to be more research done," Murphy said, for him to believe cannabis is especially dangerous for under 25s. (Of course it’s up to individual states, not Murphy, to determine the legal buying age.)
Canopy recently became a founding member of the Global Cannabis Partnership, which aims to develop industry standards for responsible use, corporate governance and environmental practices. Doing so, supporters argue will help the industry attract institutional investors, and be helpful preparation for any future scandals.
Like alcohol and tobacco, cannabis fits the profile of a “vice industry,” dependent on a relatively small number of heavy users for its revenue.
Murphy didn’t directly answer a question about what responsible use looks like. "Working out's a problem for me. I overtrain and I get colds like I have now. Eating pastas a problem for me too,” he said. “So I think we all have different vices.”
"How many people die every year from alcohol poisoning or alcoholism? How much domestic violence do we experience by alcohol related attacks?” He said he was more likely to get a cardiac arrest from “18 Starbucks” than from smoking joints.
The Canopy acquisition, Murphy said, would enable the combined company to pursue medical marijuana research. Outside the U.S. Canopy was pursuing 20 clinical trials for medical marijuana, he said.
In a June profile, Canopy CEO Bruce Linton told Bloomberg about his expansive view of the legalization opportunity. “We’re disrupting everything from veterinarian care, vet medicines, vegan proteins, OxyContin, opioids, sleep aids, geriatric care, alcohol, sports drinks.”
Fueled by a $4 Billion investment from U.S. liquor company Constellation brands, Canopy has acquired a dozen companies in the last year, including a German bio-pharma shop, and a U.K. skin care company.
Then last week Canopy fired Linton. It came days after Constellation CEO Bill Newlands said he was “not pleased” with Canopy’s fiscal year loss of C$670.1M (US$511.8) on revenue of C$226.3. (��WeedWeek Canada has all the details on Linton’s exit.)
A spokesperson for Constellation said the company was “excited” about the acquisition but didn’t respond to a question about Canopy’s clinical trials program.
Never before has cannabis looked so much like a mainstream industry.